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May 23, 2019

Wealth | Why pessimism on Social Security could come back to bite millennials

Mark Miller

6-8 minutes

CHICAGO (Reuters) -Why does the word “old” come to mind for so many of us when the topic of Social Security comes up?

FILE
PHOTO: A sign is seen on the entrance to a Social Security office in
New York City, U.S., July 16, 2018. REUTERS/Brendan McDermid/File Photo

Retirement benefits are the biggest component of Social Security. But
the program also is very important for disabled people of all ages, as
well as surviving children and spouses of deceased beneficiaries. And
perhaps most important, today’s young people will need Social Security
every bit as much as today’s retirees and near-retirees - and probably
more so if current economic trends persist.
Yet many young
people have been conditioned to think they should not count on Social
Security to be there when their time to retire rolls around. That is not
surprising, considering the negative, often false propaganda uttered by
politicians hostile to Social Security and the financial services
industry, and misleading media coverage.
The danger here is that
the current high level of worry over Social Security’s viability could
become self-fulfilling if it erodes political support. That would be
especially damaging for young people when they retire, argues Peter
Arno, an economist at the University of Massachusetts-Amherst, and a
scholar of both Social Security and health policy.
Arno
points to four trends that suggest millennials will need to rely to a
much greater extent on Social Security than current retirees and those
approaching retirement now. Millennials will be far less likely to
receive retirement income from defined benefit pensions, and they have
lower rates of home ownership than earlier generations. And, wage
stagnation and crippling levels of student debt make it impossible for
many to save for retirement.
“If you add up all these
factors, you have a constellation of things that will make it very
difficult for young people down the road,” he said. “That’s why Social
Security is crucially important for both this generation and younger
people. Joining forces between older folks in the boomer generation and
the millennial generation offers a tremendous strategic opportunity to
bolster the long-term stability of Social Security.”
Politicians
routinely claim that Social Security is going bankrupt and that its
shortfalls drive the national deficit - neither is true. I often hear
so-called experts from the financial services industry advise people to
count on receiving only part of their future benefits. Good luck with
that - just try running the numbers with only half of your projected
Social Security benefits, and you will watch your plan collapse right
there on your computer screen.
Much of the media coverage of
the annual report of the Social Security trustees also is atrocious.
Just this past April, the report’s release set off the predictable wave
of erroneous headlines and broadcast reports stating that Social
Security is “running out of money,” describing its “depleted funds” and
advising people on how to prepare for a future retirement without their
expected benefits.
Riddle me this: in what way is a program
with a cumulative surplus of $2.9 trillion running out of money? The
trustee report shows Social Security is fully funded until 2035, and 93
percent funded for the next 25 years. Yes, there is a funding problem:
absent other changes, the combined retirement and disability trust funds
will be empty in 2035.
At that point, current revenue would be
sufficient to pay about 80 percent of schedule benefits. The ensuing
across-the-board benefit cut would be very damaging for retirees and
workers, but it seems a highly unlikely outcome from a political
standpoint, considering the strong public support Social Security
enjoys.
The shortfall is due to two factors: the falling ratio of
workers paying into the system compared with expected retirees, and
rising income inequality, which has pushed an increasing share of wages
outside the payroll tax base.
A straightforward,
middle-of-the-road solution is available, and making its way through the
House of Representatives now. The Social Security 2100 Act puts Social
Security back into balance over the next 75 years by raising payroll tax
rates so gradually that few would notice - one-tenth of 1 percent per
year - and by adding new payroll taxes to wages over $400,000;
currently, tax collection stops at $132,900 of annual income. (reut.rs/2HJwldz).

WORRY ABOUT THE FUTURE

Nonetheless, the public continues to worry about Social Security’s future.
According to Gallup survey data (bit.ly/2HTLuIn),
73 percent of Americans aged 55 or older worry about the Social
Security system "a great deal" or "a fair amount." Among people age
35-54, the figure is 67 percent; among those 18-34, it is 59 percent.
Arno
argues we now have a historic opportunity to unite boomers and
millennials in support of strengthening Social Security. In a
provocative article that he co-authored recently in the American
Prospect (bit.ly/2WeWJC2), Arno
takes on the root causes of the cynicism so many young people have today
about Social Security and argues that Social Security should be a
centerpiece policy issue for anyone interested in civil rights and
social justice.
“Social Security is the most successful
anti-poverty policy in the history of the United States,” Arno said.
“And this is not true just for seniors, but across the entire life cycle
and the entire population. It reduces more poverty for children than
any other policy, more poverty for working adults and more poverty for
seniors. So it’s an intergenerational antipoverty program.”
The
program’s impact is especially profound for people of color and women,
he adds, noting that wage disparities create economic disadvantage that
persists in retirement. This is an intergenerational justice issue,” he
said. “Intergenerational in the sense that it affects all generations,
not just seniors, but everyone that’s working and families and kids.
That’s why I want to get folks to not see Social Security exclusively as
a senior’s issue.”
You can hear a longer conversation that I had recently with Arno about Social Security on my podcast. (bit.ly/2YH2Htc).
(The opinions expressed here are those of the author, a columnist for Reuters)

Reporting and writing by Mark Miller in Chicago; Editing by Matthew Lewis.

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